Europe Construction Market Report 1Q 2024
France
Local economic indicators
Gross domestic product (GDP)
The latest French National Institute of Statistics and Economic Studies (Insee) report indicates that GDP had remained unchanged in both 3Q and 4Q of 2023. The overall annual GDP growth for 2023, year-over-year (YoY), was reported at 0.9%, with the primary surge in growth, 0.7%, occurring during the 2Q of 2023.
With the winding down of construction activity related to the upcoming Paris Olympic Games, it is unsurprising that in Eurostat's latest gross value added (GVA) update, the construction industry's GVA witnessed a 2% YOY decline compared to Q4 2022, accompanied by a 0.8% decrease in 4Q 2024 relative to the previous time period. Consequently, the GVA of the construction industry, represented as a percentage of GDP, fell from 5.0% in 3Q 2023 to 4.9% in 4Q 2023.
On 29 November, the Organisation for Economic Co-operation and Development (OECD) published updated GDP predictions for 2024 revising its previous figure of 0.7% upwards to 0.8%.
Inflation
Insee's latest report reveals a decline in the Consumer Price Index (CPI), dropping from 3.6% in December 2023 to 3.1% in January 2024. Eurostat’s Harmonised Consumer Price Index (HCIP) supported these findings, showing a decrease from 4.1% in December to 3.4% in January, as well as a YoY reduction from 7% to 3.4%. These decreases have been attributed to reduced energy, food, and manufactured products prices.
Meanwhile, the OECD maintains its inflation predictions, anticipating a rate of 5.7% for 2023 and a reduced rate of 2.7% for 2024.
Construction materials
Eurostat's report on the local industrial producer price index indicates overall stability in various sectors, with significant month-over-month (MOM) reductions observed in the prices of clay and steel tubes and structural metal products, most likely due to improved energy and gas pricing stability.
Conversely, there were notable increases in electricity and flat glass prices during the same period. As is visible in the index column comparing to 12/2019, electricity, gas, steam and HVAC supply inflation remains high relative to all other sectors and shows no sign of decreasing based on its MoM and YoY data.
It is paramount to regularly update project allowances as market pricing and conditions change weekly.
See the following table for MoM, YoY and indexed pricing inflation:
The French All Trades Index (BT01) indicates a general stability in construction costs from November to December. While metal framework experienced notable price recovery YoY, smaller inflationary figures in all other areas largely offset this positive trend.
Market outlook
The construction confidence indicator saw an improvement in January, rising to -6.3 from its previous position of -10.4 in December. This positive shift was primarily driven by a notable increase in employment expectations, climbing from 0.2 in December to 4.8 in January and order books, which, although still negative, improved from -21 to -17.4.
The industry, however, still faces challenges with insufficient demand and labour shortages, which remain prominent factors limiting activity. Insufficient demand continued its upward trajectory, increasing 1.2 points from 32 in December to 33.2 in January — the highest recorded figure since February 2021 (35). Labour shortages also showed a comparable but inverse movement of 2 points from 39.7 in December to 37.7 in January.
In response to growing demand for construction services in the hospitality sector in southern France, Gleeds has expanded its presence in the French market by inaugurating a new office in Nice. This strategic move aims to better address the heightened interest in projects in the southern part of the country.
Gleeds recommends revising previously set project budgets to present-day figures based on local statistical information, our own internal data and 1Q 2024 forecasts. Additionally, we advise investors to consider inflation contingencies in their budgets as materials and labour shortages remain unpredictable.
Lutetia Hotel, Paris — Gleeds provided Quantity Surveying/Cost Management services.
